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Microsoft Shares Slide After Disappointing Cloud Forecast and AI Spending Worries

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Microsoft’s shares dropped 4.5% in after-hours trading on Wednesday after the company issued a disappointing growth forecast for its cloud computing business, particularly Azure. Despite exceeding sales expectations for the fiscal second quarter, investors expressed concerns about the company’s large spending on artificial intelligence (AI) and the potential competition from cheaper AI models emerging from China.

The cloud unit, Azure, reported 31% growth in the quarter, falling short of Wall Street’s expectations of 31.8%. Microsoft’s capital expenditures were also higher than analysts anticipated, reaching $22.6 billion, compared to the forecasted $20.95 billion.

Although Microsoft’s AI investments have led to improved performance, including a 10-fold better price-to-performance ratio, analysts are looking for clearer evidence of monetization. Despite being optimistic about AI’s future potential, Microsoft CEO Satya Nadella acknowledged that the company is still in the early stages of realizing profits from these technologies.

The rise of DeepSeek, a Chinese AI startup, has intensified concerns about increased competition in the AI market, potentially leading to a price war. Microsoft has already added DeepSeek’s AI models to its Azure offerings, highlighting the growing pressure from rivals offering cheaper AI alternatives.

However, Microsoft remains a strong player in the AI space, securing new Azure contracts, including those with OpenAI, which has helped the company achieve significant commercial bookings growth of 67%. Microsoft’s total revenue for the fiscal second quarter was $69.6 billion, reflecting a 12% increase, while earnings per share were reported at $3.23, surpassing analyst expectations of $3.11.

Despite the uncertainty surrounding AI spending and competition, Microsoft continues to be viewed as a key player in the AI sector, with its stock rising 8% over the past year, although trailing behind competitors like Alphabet and Amazon in performance.

 

Microsoft Adds DeepSeek’s AI Model to Azure, Expands AI Offerings

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Microsoft announced on Wednesday that it has made DeepSeek’s R1 artificial intelligence model available on its Azure cloud platform and GitHub, expanding its AI offerings. The model will be added to the model catalog, joining over 1,800 other AI models offered by Microsoft, and will be accessible to developers using these platforms.

This move comes just days after DeepSeek launched a free AI assistant that promises to use significantly less data and cost much less than existing services, leading to a surge in downloads. By Monday, the assistant had overtaken OpenAI’s ChatGPT in downloads on Apple’s App Store, causing concern among tech investors.

Microsoft’s adoption of DeepSeek’s R1 model is part of the company’s effort to reduce its reliance on OpenAI, which developed ChatGPT. Microsoft is seeking to integrate both internal and third-party AI models into its flagship Microsoft 365 Copilot product. Additionally, Microsoft plans to offer customers the ability to run the R1 model locally on Copilot+ PCs, which may help address privacy and data-sharing concerns.

DeepSeek’s decision to store user data on servers in China could pose a challenge for its broader adoption in the U.S., where data security is a key concern. Microsoft and OpenAI are also investigating whether a group linked to DeepSeek unlawfully obtained data from OpenAI’s technology.

In response to DeepSeek’s rise in the AI space, OpenAI’s CEO Sam Altman announced adjustments to their releases, including a new version of ChatGPT tailored for U.S. government agencies. Meanwhile, Chinese tech giant Alibaba also unveiled a new AI model, Qwen 2.5, marking the start of a busy period in the AI market.

 

Microsoft to Invest $3 Billion in India to Expand AI and Cloud Infrastructure

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Microsoft is set to invest $3 billion over the next two years to enhance its Azure cloud and artificial intelligence (AI) capabilities in India, CEO Satya Nadella announced on Tuesday. This marks the company’s largest investment in India to date, underscoring the strategic importance of the country, which offers a robust tech ecosystem and cost-effective expertise. The initiative also includes efforts to upskill the Indian workforce in AI, with plans to further train 10 million people in AI by 2030.

The investment comes on top of Microsoft’s previously announced $80 billion plan to build AI-enabled data centers for fiscal 2025. This expansion in India is seen as a critical component of Microsoft’s strategy to tap into the country’s growing tech talent, with over 20,000 employees across 10 Indian cities. Nadella emphasized the significance of India’s developer community, which is already the second-largest on GitHub, with projections to surpass the U.S. by 2028.

In Bengaluru, where Nadella was speaking at a conference, he highlighted India’s contributions to Microsoft’s AI projects, specifically in relation to GitHub Copilot, the company’s generative AI tool for developers. Nadella also stressed that India’s involvement in AI initiatives is second only to the U.S., showcasing the country’s vital role in the company’s global AI ambitions.

This investment is part of Microsoft’s broader efforts to ensure its AI technologies generate profitable returns. GitHub Copilot has already shown success, with a reported annual run-rate of $2 billion in July. The company is also focused on empowering India’s talent pool, with plans to further upskill millions and foster innovation in cloud and AI sectors.

The announcement reflects the strong ties between Microsoft and India, where Nadella, who is of Indian origin, enjoys significant respect. The “Microsoft AI Tour,” which Nadella is currently part of, has drawn large crowds, including tech professionals eager to see new product developments and interact with the company’s leadership.